LPR Nordics: Sampension hits back at guarantee switch critics

The CEO of the Danish pension fund mounts a robust defence of his decision to remove the legal basis of its product guarantees

Danish pension fund Sampension's switch from legally binding to "intentional" guaranteed rates of return was in the interests of its policyholders, as it was the only way the targets would have been possible to achieve under Solvency II, according to its chief executive officer, Hasse Jørgensen.

Speaking at Life & Pension Risk's annual Nordic event in Copenhagen, Jørgensen mounted a robust defence of the decision, which has seen his firm subjected to a storm of bad press, with local tabloid newspaper Børsen branding it "the biggest theft in history".

"There has been a lot of talk about this in the media – some of it more informed than others. It is important that people understand the facts of what happened. Given the level of additional capital that would have been required under Solvency II, this was the only viable option available," he said.

"This way we can deliver the targets to our policyholders, which we fully intend to do."

He said that because of its treatment of guarantees, Solvency II would have added Dkr8.9 billion (£1 billion) to the fund's Dkr110 billion worth of technical provisions, and Dkr14.3 billion to its capital requirement. This would result in a shortfall of Dkr17.3 billion, nearly three times its current capital base of Dkr5.9 billion, and would have required an additional rate of return of 6% on the company's portfolio.

In the wake of Solvency II, the firm would have been placed under administration by the Danish FSA, or it would have had to reduce risk exposure to such an extent that meeting the guarantees was a total impossibility.

In a lively question-and-answer session following his presentation, one audience member told Jørgensen "I take my hat off to you", before going on to ask in the light of these changes whether the Sampension CEO thought Solvency II was in policyholders' best interests.

Jørgensen replied: "Solvency II was designed to create security for policyholders – and you can say in this case it has done so, because now people understand that our guarantee is not a state guarantee. Not meeting the guarantee is not a one-in-200-year event, but perhaps more frequent."

An investigation by the Danish FSA concluded in November 2010 that there was not sufficient evidence to conclude Sampension had violated the relevant good practice rules, that it had formally complied with the regulatory procedures, and that the action did not put the policyholders at a disadvantage.

Jørgensen cited legal opinions from two Copenhagen University law professors, Mads Bryde Andersen and Jens Kristiansen, as justification for the move. Their unanimous opinion read: "There are two legal bases for eliminating guaranteed benefits – one being a right to change the terms of pension schemes according to agreement between the underwriting parties and Sampension, and the other being a unilateral right of release under civil law rules and principles."